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X Capital Management, a hedge fund manager co-founded by former Lehman banker Thomas Kratky, has launched its first fund.

It will be an event-driven strategy using equity options where managers look for short-term inefficiencies in the options market and hope to benefit from periods of choppy or range-bound equity market cycles.

Kratky, who once ran Lehman Brothers' fund of hedge funds business, said: "There are thousands of intelligent managers, backed by billions of dollars, looking for the next event that will push a stock up or down.

"We don't want to compete in that crowded and relatively efficient space. Rather, we seek to identify events that will cause a stock price to be range bound for a finite period of time and to structure positions that will benefit if that scenario plays out," he said.

The firm initiated research into this strategy in late 2003. Before opening to third parties as part of its formal launch, Kratky said the fund has generated positive returns in each of the first three months of this year.

Kratky is a former president of Lehman Brothers Futures Asset Management, based in New York. He joined Eclipse Capital Management, a trend-following and global macro hedge fund manager in St. Louis, Missouri, in 1998 as senior vice president of investor relations.